SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


          __X__  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                 THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 1999

          _____  TRANSITION REPORT PURSUANT TO SECTION 13 OR
                 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the transition period from _____ to _____

                         Commission file number 1-14762

                            THE SERVICEMASTER COMPANY
             (Exact name of registrant as specified in its charter)

          Delaware                                       36-3858106
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

One ServiceMaster Way, Downers Grove, Illinois                 60515-1700
   (Address of principal executive offices)                    (Zip Code)

                                  630-271-1300
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes __X__  No_____.

Indicate the number of shares outstanding of each of the issuer's classes of 
shares:  311,316,447 shares as of May 5, 1999.

This document consists of 17 pages, including the cover page.


<PAGE>

                                  TABLE OF CONTENTS

                                                                            Page
                                                                             No.
                                                                            ----
THE SERVICEMASTER COMPANY (Registrant) -


Part I.  Financial Information
-------  ---------------------

Consolidated Statements of Income for the
   three months ended March 31, 1999 and March 31, 1998                        2

Consolidated Statements of Financial Position
   as of March 31, 1999 and December 31, 1998                                  3

Consolidated Statements of Cash Flows for the
   three months ended March 31, 1999 and March 31, 1998                        4

Notes to Consolidated Financial Statements                                     5

Management Discussion and Analysis of Financial Position
   and Results of Operations                                                   8


Part II.  Other Information
--------  -----------------

Item 5:  Other Information                                                    15
   Sale of Premier Manufacturing Support Services


Signature                                                                     16

                                       1

<PAGE>
<TABLE>
<CAPTION>

                          PART I. FINANCIAL INFORMATION

                            THE SERVICEMASTER COMPANY
                        Consolidated Statements of Income
                      (In thousands, except per share data)

                                                                           Three Months Ended
                                                                                  March 31,
                                                                        1999                  1998   
                                                                     -----------          -----------

<S>                                                                 <C>                 <C>          
Operating Revenue..............................................     $  1,115,062        $     981,788

Operating Costs and Expenses:
Cost of services rendered
and products sold..............................................          899,815              794,797
Selling and administrative expenses............................          136,619              117,218
                                                                     -----------          -----------

Total operating costs and expenses.............................        1,036,434              912,015
                                                                     -----------          -----------

Operating Income...............................................           78,628               69,773

Non-operating Expense (Income):
Interest expense...............................................           21,948               24,095
Interest and investment income.................................           (3,621)              (3,435)
                                                                     -----------          -----------

Income before Income Taxes.....................................           60,301               49,113
Provision for income taxes.....................................           24,692               19,843
                                                                     -----------          -----------

Net Income.....................................................     $     35,609        $      29,270
                                                                     ===========          ===========

Per Share: (1) (2)

Basic..........................................................            $ .12                $ .10
                                                                           =====                =====

Diluted........................................................            $ .12                $ .10
                                                                           =====                =====

Dividends per share (2)........................................            $ .09                $ .08
                                                                           =====                =====


(1) Basic earnings per share are calculated  based on 299,602 shares in 1999 and
    279,895 shares in 1998 while diluted earnings per share are calculated based
    on 307,959 shares in 1999 and 289,455 shares in 1998.

(2) On July 24,  1998,  the  Board  of  Directors  of  the  Company  declared  a
    three-for-two  share split effective  August 26, 1998,  for  shareholders of
    record on August 12, 1998. All shares and per share data  have been restated
    for all periods presented to reflect the three-for-two split.








                 See Notes to Consolidated Financial Statements
</TABLE>

                                       2

<PAGE>
<TABLE>
<CAPTION>

                            THE SERVICEMASTER COMPANY
                  Consolidated Statements of Financial Position
                                 (In thousands)
                                                                                  As of
                                                                         March 31,      December 31,
                                                                           1999             1998    
                                                                       ------------    -------------
Assets

Current Assets:
<S>                                                                   <C>             <C>           
Cash and cash equivalents............................................ $      31,488   $       66,400
Marketable securities................................................        54,592           54,022
Receivables, less allowances of $41,159
   and $38,988, respectively.........................................       430,649          372,375
Inventories..........................................................        63,810           49,770
Prepaid expenses and other assets....................................       214,854          127,635
                                                                       ------------    -------------
    Total current assets.............................................       795,393          670,202
                                                                       ------------    -------------

Property and Equipment:
   At cost...........................................................       578,626          441,209
   Less:  accumulated depreciation...................................       302,177          229,049
                                                                       ------------    -------------
    Net property and equipment.......................................       276,449          212,160
                                                                       ------------    -------------

Intangible assets, primarily trade names and goodwill,
   net of accumulated amortization of $282,934
   and $272,254, respectively........................................     2,231,194        1,884,002
Notes receivable, long-term securities, and other assets.............       142,773          148,487
                                                                       ------------    -------------

    Total assets.....................................................$    3,445,809   $    2,914,851
                                                                       ============    =============


Liabilities and Shareholders' Equity

Current Liabilities:
Accounts payable.....................................................$      122,328   $      110,523
Income taxes payable.................................................        27,616           84,165
Accrued liabilities..................................................       262,107          302,424
Deferred revenues....................................................       254,916          204,969
Current portion of long-term obligations.............................        47,164           51,616
                                                                       ------------    -------------
    Total current liabilities........................................       714,131          753,697
                                                                       ------------    -------------

Long-Term Debt.......................................................     1,412,177        1,076,167
Other Long-Term Obligations..........................................       136,164          128,501
Commitments and Contingencies .......................................

Shareholders' Equity:
Common stock $0.01 par value, authorized 1 billion shares; issued
    and outstanding 310,150 and 298,030 shares, respectively.........         3,102            2,980
Additional paid-in capital...........................................     1,008,108          788,124
Retained earnings....................................................       189,743          179,840
Accumulated other comprehensive income...............................           (79)           3,911
Restricted stock.....................................................        (3,181)          (3,383)
Treasury stock.......................................................       (14,356)         (14,986)
                                                                       ------------    ------------- 
    Total shareholders' equity.......................................     1,183,337          956,486
                                                                       ------------    -------------
    Total liabilities and shareholders' equity.......................$    3,445,809   $    2,914,851
                                                                       ============    =============




                       See Notes to Consolidated Financial Statements
</TABLE>
                                       3

<PAGE>
<TABLE>
<CAPTION>

                            THE SERVICEMASTER COMPANY
                      Consolidated Statements of Cash Flows
                                 (In thousands)

                                                                                Three Months Ended
                                                                                     March 31,
                                                                               1999             1998    
                                                                          ------------      ------------

<S>                                                                     <C>                <C>          
Cash and Cash Equivalents at January 1................................  $       66,400     $      64,876

Cash Flows from Operations:
Net Income............................................................          35,609            29,270
    Adjustments to reconcile net income
    to net cash flows from operations:
       Depreciation...................................................          14,893            11,639
       Amortization...................................................          10,680             9,598
       Change in working capital, net of acquisitions:
         Receivables..................................................         (13,462)          (12,535)
         Inventories and other current assets.........................         (88,536)          (70,791)
         Accounts payable.............................................          (2,137)           (2,394)
         Deferred revenues............................................          40,500            38,026
         Accrued liabilities..........................................         (21,764)            7,269
         Deferred 1998 tax payment....................................         (78,478)                -
       Other, net.....................................................           3,175             2,503
                                                                         -------------      ------------
Net Cash Provided from (Used for) Operations..........................         (99,520)           12,585
                                                                         -------------      ------------

Cash Flows from Investing Activities:
    Business acquisitions, net of cash acquired.......................        (172,445)         (106,481)
    Property additions................................................         (24,731)          (23,354)
    Sale of equipment and other assets ..............................            2,821               748
    Payments to sellers of acquired businesses........................          (3,525)           (3,757)
    Notes receivable and financial investments........................          (2,105)           (1,012)
    Net purchases of investment securities............................          (4,431)             (639)
                                                                         -------------      ------------ 
Net Cash Used for Investing Activities................................        (204,416)         (134,495)
                                                                         -------------      ------------ 

Cash Flows from Financing Activities:
    Borrowings, net...................................................         415,991           123,242
    Payment of borrowings and other obligations.......................        (122,444)          (10,586)
    Shareholders' dividends...........................................         (25,705)          (22,124)
    Purchase of ServiceMaster stock...................................          (4,341)           (4,018)
    Proceeds from employee share plans................................           5,023             1,990
    Other.............................................................             500             1,390
                                                                         -------------      ------------
Net Cash Provided from Financing Activities...........................         269,024            89,894
                                                                         -------------      ------------

Cash Decrease during the Period.......................................         (34,912)          (32,016)
                                                                         -------------      ------------

Cash and Cash Equivalents at March 31.................................  $       31,488     $      32,860
                                                                         =============      ============







                 See Notes to Consolidated Financial Statements
</TABLE>
                                       4

<PAGE>

                              THE SERVICEMASTER COMPANY
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note  1:  The  consolidated   financial   statements  include  the  accounts  of
ServiceMaster and its significant subsidiaries, collectively referred to as "the
Company".  Intercompany  transactions  and  balances  have  been  eliminated  in
consolidation.

Note 2: The consolidated financial statements included herein have been prepared
by the  Company  pursuant to the rules and  regulations  of the  Securities  and
Exchange  Commission.  Certain  information  and footnote  disclosures  normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations.  However, the Company believes that the disclosures are adequate to
make the  information  presented  not  misleading.  It is  suggested  that these
consolidated  financial  statements  be read in  conjunction  with the financial
statements and the notes thereto  included in the Company's latest Annual Report
to shareholders and the Annual Report to the Securities and Exchange  Commission
on Form  10-K for the year  ended  December  31,  1998.  In the  opinion  of the
Company, all adjustments,  consisting only of normal and recurring  adjustments,
necessary to present fairly the financial position of The ServiceMaster  Company
as of March 31, 1999 and December 31, 1998,  and the results of  operations  and
cash  flows for the  three  months  ended  March  31,  1999 and 1998,  have been
included.  The preparation of the financial  statements  requires  management to
make  certain  estimates  and  assumptions  required  under  generally  accepted
accounting  principles which may differ from the actual results.  The results of
operations for any interim period are not necessarily  indicative of the results
which might be obtained for a full year.

Note 3: For interim accounting purposes,  certain costs directly associated with
the  generation of lawn care revenues are initially  deferred and  recognized as
expense  as the  related  revenues  are  recognized.  All such  costs  are fully
recognized within the fiscal year in which they are incurred.

Note  4:  On July  24,  1998,  the  Company's  Board  of  Directors  declared  a
three-for-two  share split effective August 26, 1998, for shareholders of record
on August  12,  1998.  All share and per share data have been  restated  for all
periods presented to reflect this three-for-two split.

Note 5: Basic earnings per share  includes no dilution from options,  debentures
or other financial  instruments and is computed by dividing income  available to
common  stockholders  by the  weighted  average  number of  shares  outstanding.
Diluted  earnings  per share  reflects  the  potential  dilution of  convertible
securities and options to purchase common stock.  The following chart reconciles
both  the  numerator  and  the  denominator  of the  basic  earnings  per  share
computation to the numerator and  denominator of the diluted  earnings per share
computation.

<TABLE>
<CAPTION>
                                                       Three Months                      Three Months
                                                   ended March 31, 1999              ended March 31, 1998
                                              -------------------------------    ------------------------------

(In thousands, except per share data)           Income      Shares       EPS        Income      Shares      EPS
                                                ------      ------       ---        ------      ------      ---
<S>                                             <C>         <C>         <C>         <C>         <C>        <C>                      
Basic earnings per share                        $35,609     299,602     $0.12       $29,270     279,895    $0.10                    
                                                                       ======                             ======
Effect of dilutive securities, net of tax:  
   Options                                            -       8,357                       -       8,913
   6% Convertible debenture                           -           -                      32         647
                                             ----------   ---------              ----------   --------- 
Diluted earnings per share                      $35,609     307,959     $0.12       $29,302     289,455    $0.10                    
                                             ==========   =========    ======    ==========   =========   ======
</TABLE>

                                       5

<PAGE>

Note 6: In the Consolidated  Statements of Cash Flows, the caption Cash and Cash
Equivalents includes investments in short-term,  highly-liquid securities having
a maturity of three  months or less.  Supplemental  information  relating to the
Consolidated  Statements of Cash Flows for the three months ended March 31, 1999
and 1998 is presented in the following  table.  The increase in interest paid in
1999 is primarily  due to the timing of payments.  The  significant  increase in
income  taxes  paid in  1999  reflects  the  payment  of the  1998  federal  tax
obligation.


<TABLE>
<CAPTION>
                                                                   (In thousands)
                                                                 1999         1998      
Cash paid or (received for):                                    ------       ------
----------------------------                            
<S>                                                           <C>         <C>       
Interest expense............................................  $   33,551  $   31,910
Interest and dividend income................................  $   (2,104) $   (2,007)
Income taxes................................................  $   79,549  $    2,700
</TABLE>


Note 7: Total comprehensive income for the three months ended March 31, 1999 and
1998 was $31.6 million and $31.3 million, respectively, which included primarily
net income and unrealized gains on marketable securities.

Note 8: On March 18, 1999,  the Company  completed the  acquisition  of LandCare
USA, Inc. (LandCare) which, when combined with the existing landscape operations
of ServiceMaster,  created the largest commercial landscaping company in America
with  annualized  revenues in excess of $550 million.  The Company issued shares
valued at  approximately  $192  million and assumed debt of  approximately  $127
million ($117  million of which was paid off at closing).  The  acquisition  has
been  accounted  for using the purchase  method and the results of LandCare have
been  included  in  the  Company's  financial   statements  since  the  date  of
acquisition.  The  excess of the  consideration  paid over the fair value of the
business of $260 million was  recorded as goodwill  and is being  amortized on a
straight-line  basis  over 40  years.  This  allocation  of  purchase  price  is
preliminary and subject to change as additional  information is obtained related
to the fair values of the acquired net assets.

Note  9:  The  business  of the  Company  is  primarily  conducted  through  the
ServiceMaster  Consumer and  Commercial  Services and  ServiceMaster  Management
Services  operating units. The Consumer and Commercial  Services unit provides a
variety of specialty  services to  residential  and  commercial  customers.  The
Management Services unit provides a variety of supportive management services to
health  care,   education,   and  commercial   accounts.   The  Company  derives
substantially  all of its revenues from customers in the United States with less
than five percent generated in foreign markets.

The Other Operations group includes primarily ServiceMaster Employer Services, a
professional  employer  organization  that provides clients with  administrative
processing  of  payroll,   insurance,   and  other  employee  benefit  programs,
Diversified  Health  Services  which  provides  services  and  products  to  the
long-term  care  industry,  and the Company's  headquarters  operation.  Segment
information as of and for the three months ended March 31 are as follows:


<TABLE>
<CAPTION>
                            Consumer & Commercial       Management        Other
          1999                    Services               Services       Operations    Consolidated
-------------------------   ---------------------       ----------      ----------    ------------  
<S>                              <C>                     <C>             <C>           <C>        
Operating Revenue                $   461,977             $ 501,212       $ 151,873     $ 1,115,062
Operating Income                 $    62,541             $  19,202       $  (3,115)    $    78,628
Total Assets                     $ 2,819,610             $ 243,204       $ 382,995     $ 3,445,809

          1998
-------------------------
Operating Revenue                $   363,892             $ 473,886       $ 144,010     $   981,788
Operating Income                 $    49,537             $  18,316       $   1,920     $    69,773
Total Assets                     $ 2,009,192             $ 207,976       $ 481,063     $ 2,698,231  
</TABLE>

                                       6

<PAGE>

Note 10:  In late 1998, the Company  determined to  discontinue  its  activities
in  the  Home  Health  Care  business   and   established   pretax   reserves of
$8 million  related  to  the  costs  associated  with  exiting  certain customer
arrangements.   At  the time,  the Company also  recognized  certain  impairment
losses  and   wrote-off   certain   accounts  receivable.    The   Company   has
substantially  completed  the exit of direct Home Health Care operations  in the
first quarter, and has determined that the reserve  is adequate.  The results of
operations of the Home  Health  Care business were not material to the Company's
financial results for the periods presented.

Note 11:  In June  1998,  the  Financial  Accounting  Standards  Board  issued a
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Company intends to adopt this statement
in January 2000 as required by the Statement.  Adoption of this Statement is not
expected to have a material impact on the Company's financial statements.

                                       7

<PAGE>

                              THE SERVICEMASTER COMPANY
                         MANAGEMENT DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS

FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998
-------------------------------------------------

Revenues  increased  14  percent to $1.1  billion  in the first  quarter of 1999
through  a  combination  of  acquisitions   and  solid  base  business   growth.
Approximately nine percent of the revenue increase resulted from internal growth
and small roll-up  acquisitions in existing  service lines;  primarily lawn care
and pest  control,  with  another five  percent  coming from other  acquisitions
primarily  in  landscaping.  Operating  income  increased  13  percent  to $78.6
million,  while margins of 7.1 percent of revenue remained consistent with 1998.
The operating  margin benefit from the more rapid growth of the Company's higher
margin  businesses  was  offset  by losses in the  Diversified  Health  Services
operations.  Diluted  earnings per share in the first quarter were $.12 compared
to $.10 last year.  Net income grew 22 percent to $35.6  million,  a faster rate
than earnings per share due to an increase in shares outstanding  resulting from
the Company's equity offering in May 1998, and shares issued for acquisitions.

The Consumer and  Commercial  Services  business unit  reported  revenue of $462
million,  an increase of 27 percent,  and operating income of $62.5 million,  26
percent  higher than last year.  The  segment's  growth  included  double  digit
increases at all of the  companies  in this unit,  reflecting  acquisitions  and
internal  growth.  TruGreen-ChemLawn  achieved strong revenue and profit growth,
which included the successful  ongoing  integration of the commercial  landscape
business.  About 12 percent of the segment's  revenue growth came from the entry
into  commercial  landscaping.  With the  acquisition of LandCare USA, which was
completed on March 18, the Company  becomes the largest  provider of  commercial
landscape services in the country and provides TruGreen-ChemLawn the opportunity
to integrate its traditional fertilizer and weed control services with landscape
maintenance and installation.  The lawn care operations had increased volume and
good customer count increases, despite less favorable weather conditions in many
parts of the  country  compared  to the prior  year.  Terminix  reported  strong
increases in revenues and profits with continued  strong  customer  reception of
newer  treatment  alternatives,  improved  margins  reflecting  strong growth in
higher margin termite  completions  and in the renewal  contracts as well as the
integration  of  acquisitions.  American Home Shield had excellent  increases in
both  revenues and profits,  with double digit  increases in warranty  contracts
sold through all  distribution  channels,  which includes real estate,  customer
renewals,  and  direct-to-consumer  sales.  Rescue  Rooter  reported very strong
growth in revenue and profits,  as a result of strong base business growth,  the
successful  integration of acquisitions,  as well as productivity  improvements.
The  franchise  operations,  Residential/Commercial  and Merry  Maids,  reported
strong growth in revenues and profits,  despite an extremely tight labor market,
with continued strong growth of company owned  operations,  increased  franchise
license sales, and effective cost controls.

On April 27, 1999, the Company  successfully  completed its tender offer for the
outstanding shares of American Residential Services (ARS) at a purchase price of
$5.75 per share in cash.  Subsequent to the completion of the tender offer,  the

                                       8
<PAGE>

Company and ARS effected a merger and ARS became a  wholly-owned  subsidiary  of
the Company.  ARS provides  comprehensive  maintenance,  repair and  replacement
services for HVAC, plumbing,  electrical and other systems, and major appliances
in homes and  commercial  buildings.  The  acquisition  of ARS  establishes  the
Company as one of the country's leading providers of heating,  ventilation,  and
air  conditioning  services and will  complement  the  Company's  Rescue  Rooter
plumbing  business.  ARS will also  support  the HVAC  services  offered  to the
residential  market by the Company  through its  American  Home Shield  warranty
program and its maintenance  management services of commercial HVAC equipment in
hospitals and schools.

The  Management  Services  business  unit  reported a six  percent  increase  in
revenues to $501  million and a five  percent  increase in  operating  income to
$19.2 million.  This growth  reflects the benefit of  acquisitions  and internal
growth, partially offset by the sale of the Company's Energy Management business
in late 1998. The Healthcare  market  experienced a moderate  decline in revenue
and profits,  primarily due to the effects of customer  terminations in 1998 and
continued margin pressures in the acute care sector of the market.  The overhead
reduction  initiatives put in place last year helped offset lower gross margins.
The  Education   market  reported  solid  increases  in  revenues  and  profits,
reflecting  continued good sales momentum and controlled overhead spending.  The
Business  & Industry  group  achieved  strong  growth in  revenue  and  profits,
reflecting base business growth and the integration of acquisitions.

On April  21,  1999,  the  Company  sold  one of its  specialty  units,  Premier
Manufacturing Support Services (Premier), to Durr AG of Germany for $76 million.
Premier  provides   cleaning   services  for  paint  booths  and  other  related
maintenance  services in the  automotive  industry.  The Company  believes  that
alliances or  significant  incremental  investments  would have been required to
remain competitive in this industry.  The sale of Premier allowed  ServiceMaster
to realize the  significant  appreciation  in its investment and to reinvest the
proceeds in initiatives more central to the Company's core strategies.  The sale
resulted  in an  after-tax  gain of  approximately  $25  million,  which will be
recorded in the second quarter.

The Diversified Health Services operation,  which provides a variety of services
and products to the long-term  healthcare market,  reported an operating loss in
the  quarter.  Changes  in  reimbursement  policies  and  regulatory  compliance
standards have had a significant  impact on the companies serving this industry.
As a result, the Company has begun a strategic review and assessment of services
comprising  this  business  unit to  determine  how they fit into the  Company's
longer-term strategic objectives.

Cost of services rendered and products sold increased 13 percent,  due primarily
to general  business growth and  acquisitions,  but decreased as a percentage of
revenue to 80.7  percent  from 81.0  percent in 1998.  This  decrease  primarily
reflects the changing mix of the business,  as Consumer and Commercial  Services
increases in size in  relationship  to the overall  business of the Company,  as
well  as   productivity   improvements,   and  the  successful   integration  of
acquisitions  at Consumer and Commercial  Services.  The Consumer and Commercial
Services   businesses   generally   operate   at  higher  gross  margin   levels

                                       9

<PAGE>

than  the  rest  of  the  business,   but also incur somewhat higher selling and
administrative expenses as a percentage of revenues.

Selling  and  administrative  expenses  increased  17  percent,  due to  general
business  growth and  acquisitions,  and increased as a percentage of revenue to
12.3 percent from 11.9 percent in 1998. This increase as a percentage of revenue
is primarily due to the changing business mix of the Company noted above.

Interest  expense  decreased  from the prior year,  reflecting  a lower level of
average outstanding borrowings, primarily due to the May 1998 equity offering.

FINANCIAL POSITION
------------------

Net cash used for operations of $100 million was  significantly  below the first
quarter level in 1998. The decrease  primarily reflects the deferral of the 1998
federal tax payment until March of 1999 as well as increased  investments in the
Company's  seasonal  businesses,   including   additional   investments  in  the
commercial landscaping operation,  and the timing of certain payments throughout
the enterprise. Federal taxes of $78 million on the Company's 1998 earnings were
accrued for in the financial  statements  in 1998,  but not paid until the first
quarter of 1999.  Excluding  this tax payment,  cash used for operations was $21
million.  (Some of the tax expense in 1998 and 1999 will be deferred  for longer
periods of time due to the significant  timing  difference  between book and tax
basis.) Due to the  seasonality  of the lawn care,  landscape  and pest  control
operating cycles, the Company's working capital needs are the highest during the
first quarter.  Management  believes that funds  generated  from  operations and
other existing resources will continue to be adequate to satisfy ongoing working
capital needs of the Company.

Accounts  and notes  receivable  grew over year end levels,  reflecting  general
business  growth,  increased  seasonal  activity in the Consumer and  Commercial
Services  segment,  and  acquisitions,   primarily  LandCare.  Inventories  also
increased over year end levels as a result of normal  seasonal  build-ups in the
lawn care business and acquisitions.

Prepaids and other assets have increased from year end because of seasonality in
the lawn care business and the increased volume of warranty contracts written at
American Home Shield.  The lawn care operation  defers certain  marketing  costs
that are incurred  during the first quarter,  but are directly  associated  with
revenues  realized in subsequent  quarters of the current year.  These costs are
then amortized over the balance of the current lawn care production  season,  as
the related revenues are recognized.  Deferred revenues also grew significantly,
reflecting  strong  growth at  American  Home Shield and  increases  in customer
prepayments for lawn care services.

Property  and   equipment   increased  due  to  general   business   growth  and
acquisitions,   primarily  LandCare.   Capital  expenditures  grew,   reflecting
increased  investments  in  technology  throughout  the  organization,  business
growth,  and  recurring  capital  needs.  The Company  has no  material  capital
commitments at this time.

                                       10

<PAGE>

Intangible assets increased $347 million from year end, reflecting the effect of
the acquisitions,  which included $260 million from LandCare and various smaller
acquisitions in the Consumer and Commercial Services segment.

Accrued  liabilities  decreased  from  year end,  primarily  due to the 1998 tax
payment made in March of 1999. Debt levels  increased due to the seasonal nature
of the Company's  operating  cash flows and the 1998 tax payment,  combined with
the effects of acquisitions  and property  additions.  The Company is party to a
number of long-term debt agreements which require it to maintain compliance with
certain financial covenants,  including limitations on indebtedness,  restricted
payments,  fixed  charge  coverage  ratios,  and net  worth.  The  Company is in
compliance with the covenants related to these debt agreements.

Total  shareholders'  equity increased to $1.2 billion in 1999 from $956 million
at December 31, 1998,  reflecting  earnings  growth as well as the shares issued
for  acquisitions,  partially  offset  by  cash  dividends  and  treasury  share
repurchases. Cash dividends paid directly to shareholders totaled $27 million or
$.09 per share.  The increase from the prior year reflects a 13 percent increase
in the dividend rate per share and an increase in shares outstanding,  primarily
resulting from the May 1998 equity offering and shares issued in acquisitions.

YEAR 2000 READINESS DISCLOSURE
------------------------------

Year 2000 Compliance.  Certain computer programs use two digits rather than four
to define the applicable year and consequently may not function  properly beyond
the year 1999 unless they are remediated.  In addition,  some computer  programs
are unable to recognize  the year 2000 as a leap year.  These  problems may also
exist in chips embedded in various types of equipment. The Company has long been
aware of this Year 2000 (Y2K)  problem.  The  Company  is  dealing  with the Y2K
problem in part  through  system  upgrades,  which were  planned to occur in the
normal  course of business.  In other cases,  the Company has put programs  into
place which the Company  believes  will result in the  completion  of  necessary
remediation efforts prior to the year 2000.

State of Readiness.  The Company has initiated a program (the "Y2K  program") to
address  Y2K issues as they affect the  Company's  information  technology  (IT)
systems,  electronic data  interfaces and its non-IT hardware and services.  The
Y2K program was set up to use the following  steps as  appropriate:  inventory -
assessment - planning  renovation - testing - implementation.  In addition,  the
program  calls for  inquiries  of the  Company's  major  suppliers  of goods and
services  to  determine   their  Y2K  status  and  a  review  of  the  Company's
relationships   with  its   customers  to  determine  if  the  Company  has  any
responsibility  for the status of the  customers' IT and/or  non-IT  systems and
hardware.

In 1998,  the  Company  began to monitor  its  progress  on the Y2K program on a
consolidated  basis and completed an inventory  which covered both IT and non-IT
items  for  all  operating   companies  and  administrative   units  within  the
ServiceMaster enterprise.  All items in the inventory were placed in one of four
categories:  mission  critical,  critical,  important  and  ordinary  within the
context of the operating company or  administrative unit involved.  (A  "mission
critical"

                                       11

<PAGE>

or "critical"  designation for an item within an operating  company or
administrative unit does not necessarily hold the same level of criticality from
the perspective of the entire ServiceMaster enterprise.)

Remediation  plans have been  developed  for the mission  critical  and critical
matters,  with milestones  established for each plan which enable  management to
measure  the  progress  made in  respect  of a plan  against  the work  schedule
established  for that plan.  Although  these  plans  encompass  many  separately
identifiable items, from a ServiceMaster  enterprise standpoint,  there are nine
projects (the "Key Projects")  which management has identified as either mission
critical or critical and which will require a measurable  amount of attention to
remediate.  Although all of the Key Projects are scheduled for completion before
the end of the year 1999,  most of the Key Projects are scheduled for completion
by June 30, 1999.  As of May 10,  1999,  work on each of the Key Projects was on
schedule and the Company  believes  that all Key  Projects  will be completed in
accordance with their scheduled completion dates.

The Company  utilized the services of an outside  consultant for the Y2K program
to help  identify  Y2K  issues  and to  develop  a  system  to  closely  monitor
remediation work. In early 1998, the Company  established a Y2K committee in the
parent unit with  responsibility  for  monitoring the Y2K program in each of the
Company's  operating  units and for  providing  status  reports  to the Board of
Directors.

In addition  to the Key  Projects,  remediation  plans are being  developed  for
LandCare USA,  Inc. and American  Residential  Services,  which were acquired in
March  and  April of 1999,  respectively.  In both  cases,  the  companies  have
extensive branch networks which operate on a variety of different platforms. The
Company intends to remediate  these branches by implementing a common  operating
system where possible by year end, and implementing Y2K upgrades to the existing
systems in the other  branches.  At this time,  the Company  does not expect Y2K
problems  to occur  as a  result  of the 1999  acquisitions  which  will  have a
material adverse effect on the ServiceMaster enterprise.

Year 2000 Costs.  Several of the Key Projects are upgrades of systems  which the
Company would have undertaken  irrespective  of the Y2K problem.  In some cases,
including a new accounting and financial reporting system for the parent company
and  its  Management  Services  subsidiary,  work  on  these  systems  has  been
accelerated  in view of Y2K issues.  Other  upgrades or new systems were already
scheduled for  completion  prior to the year 2000,  such as a new support system
for the  Company's  American Home Shield  subsidiary  and a new  accounting  and
billing system for the recently developed  commercial  landscape business within
the Company's TruGreen-ChemLawn  subsidiary.  References to "Year 2000 costs" in
this report do not include the costs of projects  for which no  acceleration  is
occurring due to Y2K issues.

The  Company's  Year  2000  costs  to  date  are  not material to its results of
operations or financial position and the Company does not expect its future Year
2000  costs  to  be material to the Company's results of operations or financial
position.   All Year 2000 costs (as well as the costs of  installing  the system
upgrades  referred  to  above) have  been,  and  are expected to continue to be,
funded with cash from operations.

                                       12
<PAGE>

Year 2000 Risks.  The Company  believes that its greatest risk in respect of the
Year 2000  problem,  is that key third party  suppliers of goods or services may
fail to complete  their own  remediation  efforts in a timely manner and thereby
provoke an interruption in the ability of one or more of the operating  segments
of the Company to provide  uninterrupted  services to their  customers.  Utility
services (electrical,  water and gas), telephone service,  banking services and,
to a much lesser degree, the delivery of certain products are the critical items
in this regard.  Based on the Company's  inquiries to its providers of goods and
services  and on the basis of the  Company's  general  knowledge of the state of
readiness of the utility  companies and banks with which it does  business,  the
Company does not expect to suffer any material  interruption  in the services on
which the Company depends.

The Company has reviewed its agreements with certain of its customers, including
particularly the customers of its Management  Services units for whom such units
provide facility  management  services.  The Company is satisfied that it is not
responsible, contractually or otherwise, for the Y2K readiness of the customer's
IT and  non-IT  systems  and  hardware,  and the  Company  is in the  process of
notifying all of its customers to this effect where, in the Company's  judgment,
the nature of the customers' business or facility warranted such notices.

Where the Company uses its own  software in the course of  providing  management
services,  the  Company is  responsible  to make such  software  Y2K ready.  The
Company is confident that such software is already,  or soon will be, Y2K ready.
For those units of the Company which sell franchises and which provide  software
to the franchisees,  such software is already,  or soon will be, fully Y2K ready
or,  alternatively,  provision has been made for making available to franchisees
software from  third-party  developers from whom appropriate Y2K assurances have
been or will be received.

Contingency  Plans.  At this time, the Company fully expects all of its internal
key IT and non-IT systems to be Y2K ready well in advance of the end of the year
1999.  If  it  appears  that  timely  delivery  of  any  Key  Projects   becomes
questionable,  the Company  will  immediately  develop  appropriate  contingency
plans.

The  Company  presently  expects  that its  significant  providers  of goods and
services are or will be Y2K ready by the end of the year 1999.  The Company will
continue to make  inquires of its key  suppliers for the purpose of testing this
expectation.  Insofar as the  Company is  exposed  to risks  originating  in Y2K
problems at key suppliers, the Company will utilize short-term solutions, but no
practical  long-term  contingency  plans for these  external  Y2K  problems  are
possible.

Although  the  Company  believes  that  critical  remediation  efforts  will  be
completed  prior to the Year 2000,  the  untimely  completion  of these  efforts
could,  in  certain  circumstances,  have  a  material  adverse  effect  on  the
operations of the Company.

                                       13

<PAGE>

Definition.  As used in this Year 2000 Readiness Disclosure Statement,  the term
"year 2000 ready" or "Y2K ready" when used with  reference to a item of software
or  equipment  means the  capability  of the  software or  equipment  to process
correctly  (including  calculating,   comparing,   sequencing,   displaying,  or
storing),  transmit,  or receive date data from,  into, and between the 20th and
21st  centuries,  and  during  the years  1999 and  2000,  and to make leap year
calculations,  provided  that all  products  used with the software or equipment
properly exchange accurate date data with it.

                                       14
<PAGE>

                               PART II. OTHER INFORMATION


ITEM 5:  OTHER INFORMATION

SALE OF PREMIER MANUFACTURING SUPPORT SERVICES
----------------------------------------------

On April 27,  1999,  the  Company  announced  the sale of Premier  Manufacturing
Support  Services  (Premier) to Durr AG of Germany.  Premier  provides  cleaning
services  for  paint  booths  and  other  related  maintenance  services  in the
automotive industry. The sale price of Premier was $76 million,  resulting in an
after-tax gain of approximately $25 million.






In accordance  with the Private  Securities  Litigation  Reform Act of 1995, the
Company  notes  that  statements  that  look  forward  in  time,  which  include
everything other than historical  information,  involve risks and  uncertainties
that may affect the Company's actual results of operations.  Factors which could
cause actual results to differ materially  include the following (among others):
weather  conditions  adverse to certain of the Company's Consumer and Commercial
Services businesses, labor shortages, the entry of additional competitors in any
of the  markets  served  by  the  Company,  consolidation  of  hospitals  in the
healthcare  market,  the  condition of the U.S.  economy,  the  inability of key
suppliers to achieve  timely Y2K  compliance  in their  delivery  systems or the
inability  of the  Company  to make its own  systems  Y2K  compliant,  and other
factors  listed from time to time in the Company's  filings with the  Securities
and Exchange Commission.

                                       15

<PAGE>

                                      SIGNATURE


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Date:  May 14, 1999


                          THE SERVICEMASTER COMPANY
                          (Registrant)

                          By:                    /s/Steven C. Preston          
                             -------------------------------------------------
                                                    Steven C. Preston
                          Executive Vice President and Chief Financial Officer


                                       16